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Assignment: "The Federal Reserve and Monetary Policy"
Visit the Federal Reserve website and answer the following questions in your own words.
Part 1:
• What is the mission and legal mandate of the Federal Reserve System? • What policy tools are available to the Fed to achieve its mission?• What is the difference between an insolvent bank and an illiquid bank?
o Why/how does the Fed treat banks that are insolvent differently from illiquid banks?
Part 2:
The Fed has only increased the interest or discount rate twice since the 2007/08 recession. Will it push the rates up a bit more? We don't know! We can find out what those at the Fed are thinking by checking out posted information each month by the FOMC (Federal Open Market Committee).
• According to the Fed, what are its inflation and full-employment targets?
• Explain how changes in the money supply will raise interest rates and how the anticipated increase in interest rates will likely affect GDP and employment.
Why might it be difficult for the Fed to formally adopt inflation targeting? Would inflation targeting be a good policy for the Fed in the present economic environment
In using the Taylor Rule as a guideline for monetary policy, what are the pros and cons of using forecasted values of inflation and output rather than observed values of these variables?
Describe the present economic crisis situation in Europe. Why has it been so difficult for the Europeans to find a solution to this problem? Comment on what implications the crisis may have for the rest of the world if Europeans are not able to ag..
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